Contracts are an integral part of our daily lives. Whether you are up for a new job or getting your hands on the latest gadget, you are bound to a contract. Off late, a new kind of contract execution has been doing rounds.
Smart Contract Development is the king of contract execution that eliminates the need of third parties in ensuring the fulfillment of contractual clauses.
Let us see Smart Contract Development and the guidelines to be followed in detail.
What is a Smart Contract?
In simple words, smart contract is a virtual contract that is encoded in a blockchain network. It allows the user to perform credible transactions without third parties. All the smart contract transactions are trackable and irreversible, making the entity all the more reliable.
In much specific lingo, smart contracts are a piece of software which store the rules by which the terms of an agreement is to be negotiated. The software automatically verifies the fulfillment of the agreement and then executes the agreed terms.
The concept of smart contract was introduced in 1994 by Nick Szabo and gained popularity in latter half of the 21st century. The contractual clauses in a smart contract may be partially or self executing or at times be both. The contract aims at providing superior security when compared to traditional contract systems and reduce the transaction costs associated with contract execution.
We know that much of the online crowdfunding activities are executed with the help of ICOs. The terms and conditions to be followed for investment and the criteria for the returns are coded in a blockchain and executed through smart contracts.
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Where is smart contract development employed?
The complexity of traditional contracts can be a bit overwhelming. The process involves high administrative costs, third party involvement and a lot of chaos.
The world is moving into a direction of complete digitisation. Smart contracts are the answer to cries around the world for a reliable and digital business agreement. The contractual clauses are carried out via blockchain and avoids third party systems. It allows visibility and access for all the relevant parties.
Seems tailor made for our needs, right? Well, let us see where exactly is the smart contracts utilised to the full potential.
It is a known fact that an insurance claim will take ages to process. The insurance companies often face the brunt of the claimants but they are kind of helpless, often due to admin costs, gluts and other inefficiencies. Not anymore. With smart contracts, we can put in a system where the claim can be automatically triggered if certain events occur. Certain details is to be entered into the system by the person raising the claim or his legal guardian or partner, like the extent of damage. Once this is done and the loss is evaluated, the system generates the compensation.
- Supply Chain Management
Well, we all know that the supply chain management involves the flow of goods from raw material to finished products. The smart contract helps in recording the ownership rights of the products in the supply chain so that at any point of time in the chain, the ownership rights of the product is known.
- Mortgage loans
The process of mortgaging is a very complex process. The lenders often employ third parties to check on the mortgagees’ income, outgoings, credit score and much more. This would often incur heavy expenses to the lender. If the lender and the mortgagee could engage in the lending process directly by enacting the terms and conditions through smart contract, then a lot of time and money can be saved, thereby unknotting the complexity in the system.
- Employment Contracts
There is always a sort of confusion in a relationship between the employer and employee. Instead of the traditional contracts, if the employee and the employer enter into a smart contract, the employee would know what the employer expects from him and vice versa. Recording transactions in this manner eliminates the vagueness in the system and brings in a bout of fairness. This in turn would improve the relationship between the employer and the employee.
- Copyright Protection
As we all know, whenever a song is used for commercial purposes, its creators get a royalty fee. There are a number of people involved in the creation of a song. As of now, there is no system in place that can specifically point out the actual owners of the song and hence, the rightful to earn the royalty fee. Smart contract ensures that the copyrights would go to the intended recipients when the ownership rights are recorded in a blockchain.
How is a smart contract executed – A step by step guide
We will describe the execution of the smart contract with an illustration.
X wants to rent out his apartment in London and Y is hunting for a place to live in the same city. Following the conventional procedure, they will hire a real estate agent, a third party and entrust them to meet their needs. The agent will then have the responsibility of ensuring the compliance of the terms and in return for his services, he would charge a fee.
This might seem to be a picture perfect scenario but the catch here is that the real estate agent cannot guarantee the fulfillment of the terms.
Now, let us consider the case of smart contract, the following events would unfold.
- An independent storage would be created by X and in the blockchain.
Y would put the rent mentioned in the contract in the storage.
- X would place the address of the apartment and the access code to the door of the apartment in the storage.
- X would get payment confirmation and Y would get the address and access code.
- A smart contract is immutable, hence X and Y cannot cheat nor can they change the terms in the contract.
Now the aforesaid events can lead to three scenarios.
Case 1: Y comes to the city and find the address and access code given by X are right. X receives the payment agreed upon earlier
Case 2: Y comes to the city to find the address and access codes given by X are phony. Y receives the advance rent payment he made.
Case 3: Y doesn’t come to the city. In this case, X receives some fraction of the advance rent as compensation, as per terms in the contract and rest is refunded to Y.
The contract will be termed fulfilled and will remain in the blockchain.
Platform for Smart Contract Development
The smart contracts are deemed as the real blockchain revolution with blockchain development. The previous has seen an immense growth in the reception of ICOs and smart contract development has taken a real turn into the mainstream business.
Smart contracts can be generic or can be developed from the scratch. The former kind is employed in case of the ICO tokens while the later requires a programmer to code the smart contract. Building a smart contract from the scratch would ensure that there is room for a lot of customisation.
Here we will mention the top five smart contract development platforms.
2. Hyper ledger Fabric
Smart contracts have many benefits that spread across boundaries into a wide range of industries. Unnecessary costs can be reduced and a great amount of time can be saved , while not compromising the transparency of the system.
The smart contract development is seen to be much better that traditional contract implementation, at least in theory. Though chances of fraudery are not entirely zero, businesses can definitely move forward to this digital space, keeping these risks in mind and adopting necessary measures to keep such risks at bay.